Connect vertices from inner circle to outer circle
You should use the Bridge Edge Loops tool.

You can get to it three ways:


CtrlE > Bridge Edge Loops (CtrlE L) 
W > Bridge Edge Loops (W E)
From the 3D view header Mesh > Edges > Bridge Edge Loops




alternatively, AltF then AltJ, which will "Beauty" fill the the hole with triangles, then convert the tris to quads.